patentology

18 January 2015

Last week I looked at the year just passed, and compared my predictions with reality. This week I want to look at the coming year in patents, to preview some anticipated developments, and to make new predictions for 2015.

Here, in brief, are some of the developments that I will be watching this year:

in the US, the Patent and Trademarks Office will continue ‘refine’ its guidelines for the examination of patent-eligibility, while there will doubtless be further attempts to pass new patent law reforms.

Read on for my further thoughts and predictions on these issues.

Gene Patent Appeal

Some time in the next few months, the High Court of Australia will hear Yvonne D’Arcy’s application for special leave to appeal the unanimous finding of five judges of the Federal Court of Australia that isolated genes constitute patent-eligible subject matter in Australia.

I consider the Full Court’s decision to be extremely sound, both technically and legally. From a policy perspective, the court also made the point that parliament has had ample opportunity recently to amend the law, should it wish to exclude isolated genes from patentability, and it has declined to do so (notwithstanding considerable efforts by a vocal minority to bring about legislative change).

My prediction is therefore that the High Court will not take up Ms D’Arcy’s case. Even if it it were to do so, I cannot see it overturning the ruling of the Full Federal Court. Isolated genes will remain patentable in Australia.

Any further clarification of the law relating to patentability of computer-implemented inventions in Australia will therefore need to come from the Full Court appeal in the RPL Central case. As regular readers will be aware, I am involved in that case, and therefore cannot say too much about it at this time. I am, however, hopeful that the appeal will be heard in the first half of the year, and that we might receive a relatively speedy judgment within 2015.

NPEs in Australia

There are currently two cases making their way through the Federal Court procedures which involve ‘non-practising entities’ (NPEs) – companies sometimes know pejoratively as ‘patent trolls’.

In the first of these cases, US-based Vringo Infrastructure, Inc has sued Chinese telecommunications equipment maker ZTE Corporation, alleging infringement of two Australian patents it acquired from Nokia, relating to cellular mobile systems and standards. In the second case, Upaid Systems Ltd, a company incorporated in the British Virgin Islands, has sued Australia's largest telecommunications carrier, Telstra, for infringement of two patents relating to making online purchases from mobile devices.

Although they never say so bluntly, ZTE contend that Vringo are "patent trolls". They contend that Vringo have conducted themselves in various inappropriate ways around the world against ZTE. However ZTE have not alleged or pleaded that any of this conduct amounts to a defence relevant to the issues I have to decide at this trial. For example no defence in competition law is relied on. Vringo do not accept that ZTE's allegations are correct. Whether ZTE are right or wrong about this is irrelevant and I will ignore these allegations.

This seems to me to be a fair statement of the position in Australia also, although it is worth noting that the irrelevance of a patentee’s business model to issues of infringement and validity does not necessarily extend to the remedies that might be granted by the court to a successful party. For example, it is far from apparent that an NPE should be entitled to an injunction, or indeed to any remedy beyond an award of the reasonable royalties it would have expected to collect had the operating company taken a licence.

In any event, if ZTE continues to lose in other jurisdictions, it is likely that it will end up agreeing to take a worldwide licence to exploit the relevant patents held by Vringo, in which case the Australian case may never proceed to trial.

Upaid v Telstra

As for Upaid, it is continuing to struggle in its efforts to plead a sufficient claim against Telstra, demonstrating just how difficult it may be for an NPE to bring a case against an operating company in Australia. In a recent development, the Federal Court issued a decision on 16 December 2014 (Upaid Systems Ltd v Telstra Corporation Ltd (No 2)[2014] FCA 1377) revealing that Upaid is, in effect, seeking to interrogate Telstra employees in order to obtain information that it needs to bolster its claims.

In patent cases involving disputes between active competitors, adequacy of the patentee’s particulars is rarely an issue. A practising company can be expected to have a good understanding of the technology employed by its competitors – after all, it is undoubtedly providing similar goods and services itself. An NPE, however, may have less comprehension of the technical operations of the accused infringer, and may therefore be more likely to rely upon inference and observation of end results as a basis for its allegations. Upaid’s experience demonstrates that this may not be sufficient.

At this stage, therefore, it is unclear whether Upaid will even be successful in bringing a case against Telstra, let alone whether it can actually succeed on the merits of that case. I am going to call this one for Telstra, just because Upaid seems to be facing such a steep uphill battle.

Incidentally, one other interesting point that was revealed in the recent judgment is that Upaid is specifically targeting Telstra’s “MOG” music subscription service (formerly known as Bigpond Music).

Inventive Step in the High Court?

Aside from the Myriad gene patent case, an application for special leave to appeal to the High Court review has also been made in the dispute between drug originator AstraZeneca and generic manufacturer Apotex in relation to the cholesterol-reducing drug marketed as CRESTOR.

I am not sure whether the High Court will take this case on, however considering that there have been inconsistencies in Federal Court decisions relating to the assessment of inventive step it is possible that the country’s top court will decide to weigh in on the ‘starting point’ issue. On the other hand, the appeal was heard by an expanded panel of five judges of the Federal Court precisely so that prior inconsistent decisions of the Full Court could be overruled if required. A further review by the High Court may therefore be regarded as unnecessary.

I think this one could go either way, and will be watching with interest.

More US Patent Reform?

The focus of patent law reform in the US during 2013/14 was on efforts to reduce litigation abuse, such as that employed by ‘patent trolls’. Legislation introduced initially in 2013, and then revived in 2014, included three main mechanisms to address the problem:

‘fee shifting’ – whereby the losing party has to pay the winner’s costs of conducting the litigation – the default position (at least in certain cases), rather than the exception, as is currently the case under the so-called ‘American rule’;

requirement for the patent-holder to provide substantial detail of the infringement allegation when commencing litigation (compare with the challenges faced by Upaid in Australia, as outlined above); and

delaying discovery until after any claim construction (‘Markman’) hearing has been held, so that some of the most significant early costs of defending an infringement suit would be postponed until after the court has determined the meaning and scope of the patent claims.

Of these proposed reforms, fee shifting has been most controversial, and appeared to be responsible for legislation stalling in the Senate in 2014, after a range of stakeholders – including NPEs such as universities and research institutes – expressed concerns that the changes go too far. Additionally, recent data suggests that the continuing impact of the America Invents Act, along with the effect of a series of patent rulings by the US Supreme Court, are already helping to reduce the number of ‘troll-related’ law suits.

The scene is therefore set for some form of further reform in the US during 2015. My prediction is that it will involve some compromise, particularly over the fee-shifting issue.

Conclusion

I have written before that when I started this blog in June 2010 I expected that it would consist mostly of case reviews (which I thought would be relatively few and far between) along with fairly esoteric musings about the patent system in general.

However, as I come up towards the end of five years of blogging, patents are now undeniably ‘mainstream’. The ‘gene patents’ debate, alarming reports about the impact of ‘patent trolls’, and a number of high-profile global patent disputes (most prominently between Apple and Samsung) have kept patents fairly consistently in the news for a number of years now, and this does not look set to change in 2015.

Some of the matters I have discussed above will make it into the mainstream media and, more so, specialist online channels. Other stories will emerge that I have not predicted. I am also keeping a wary eye on developments at the European Patent Organization, where tensions continue to simmer between staff and management. This has largely failed to capture any interest outside of a few IP blogs (and, as I have explained recently, I am reserving judgment in the absence of independent verification of some of the allegations that have been circulating). However, that could change if something genuinely dramatic were to emerge.

I therefore fully expect that 2015 will, like the year just passed, once again provide far more patent-related news than I can possibly keep up with. And, before you know it, we will come to the end of another year, and I will look back on these predictions and see how well – or ineptly – I have looked into my crystal ball!